missed questions

Which of the following statements accurately reflect the nature of buy-sell agreements? a. A stock redemption plan must have a corporation as a party to the contractual arrangement. b. A stock redemption plan increases the cost basis of surviving shareholders. c. Under a cross-purchase plan funded with life insurance, premiums paid are tax deductible to the payor. d. Proceeds of a life insurance policy owned by a surviving shareholder must be included in the gross estate of the decedent.

A The corporation must be a party to the stock redemption plan. A stock redemption plan is a stock purchase by a corporation, so the cost basis of the surviving shareholders are not affected, thus they do not receive a step up in basis. Proceeds of a policy owned by a surviving shareholder are not includible in the decedent's gross estate. Premiums are not tax deductible.

Which of the following accurately describes Joint Tenancy with rights of survivorship: I. Equal interests are owned by each joint tenant. II. This type of property acts as a will substitute. III. This type of property gives the right of survivorship to all owners. IV. Joint tenancy is severed if one owner unilaterally transfers his/her interest. V. The interest can be devised. a. I, II and III only. b. I, II, III and IV only. c. I, III and V only. d. I, II, III, IV and V.

B A devise is a specific bequest through a Will and joint tenancy property passes outside the Will (i.e., by operation of law).

To collect assets from another trust or not held in trust and place them into a trust to control the distribution according to trust provisions, is known as: a. Sprinkle. b. Pour-over. c. Selection. d. Collection.

B Pourover is the collection or "sweeping-up" of assets in or out of trusts overlooked in transfer and placing them into a separate trust through the will.

Which of the following statements is correct? I. Unpaid medical expenses of a decedent can be deducted on the final 1040 or form 1041 but not on both. 2. Any executor fees may be deducted on form 706 or the 1041 return. a. 1 only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.

B Unpaid medical expenses can be deducted on the 1040 or the 706 but not the 1041, which makes statement 1 false as it included the 1041. Statement 2 is true. The 1040 is the decedent's file Federal tax filing. The 1041 is the estate tax return. The 706 the estate tax is used to figure the estate tax due.

Some estate planning can occur after death (post mortem). Some post mortem techniques or tools require an executed document prior to death. Which of the following is effective without a previously executed document that is enforceable after death? I. QTIP property election to qualify for the marital deduction. II. Section 303 stock redemption election. III. Election to waive the personal representative fees. IV. Election by the personal representative to use a credit shelter trust. a. I and III only. b. I, II and III only. c. II and III only. d. I, II and IV only.

C Statement "II" is based solely on the percentage of business value to total estate and the company E and P account. Statement "III" is accomplished by the representative simply signing a waiver of fees (a disclaimer). All others must be established prior to death to be available to the personal representative on an optional basis. While the QTIP election is made by the executor the decedent must have a properly directed and executed will to leave property in a qualifying way in a QTIP.

Joyce's gross estate was $1,000,000. Her funeral costs were $16,000. She left $34,000 to charity. Total amount of home mortgage (owned in JTWROS with her spouse) was $100,000. The home was valued at $200,000. She had personal consumer debt of $15,000. Her spouse was her personal representative and waived his fees. She left $260,000 in cash outright to her spouse. What is her taxable estate? a. $525,000 b. $539,000 c. $575,000 d. $589,000

C AGE: $1,000,000 - $16,000 (admin cost) - $50,000 (1/2 debt from the mortgage) - $15,000 (credit card debt) = $919,000 Taxable Estate: $919,000 - $310,000 (marital deduction) - $34,000 (charitable deduction) = $575,000 The marital deduction is calculated as follows: The total amount of the home is $200,000 therefore her portion would be $100,000. If the debt is $100,000 then her portion is $50,000. So she would be leaving $100,000 - $50,000 = $50,000 to the spouse for the home. So total marital deduction is $260,000 + $50,000 = $310,000.

Which of the following is true regarding a Grantor Retained Annuity Trust (GRAT)? a. At the end of the GRAT term, a taxable gift occurs. b. If the grantor dies during the trust term, a pro rata portion of the trust assets are included in the grantor's estate. c. Interest and dividends earned by assets in a GRAT are taxed to the grantor. d. If the grantor survives the trust term, all of the trust assets will be included in the grantor's estate.

C Answer "A" is incorrect because a taxable gift occurs when the GRAT is established, not when the GRAT term ends. Answer "B" is incorrect because if the grantor dies during the trust term, all of the trust assets are included in his gross estate. Answer "D" is incorrect because if the grantor survives the trust term, none of the trust assets are included in his estate.

Which of the following statements is/are correct? I. The value of a CRAT where the only noncharitable income beneficiary was the decedent is included in the gross estate of the decedent. II. The value of a CRUT where the decedent and his currently surviving spouse were both the only non-charitable income beneficiaries is included in the decedents' gross estate. a. I only. b. II only. c. Both I and II. d. None of the choices.

C Both trust assets are included in the gross estate of the decedent. The CRAT is then deductible as a charitable deduction from the adjusted gross estate (AGE). The CRUT is partially deductible as a qualified terminable interest property transfer under the unlimited marital deduction from AGE and the remainder is deductible as a charitable deduction from AGE.

Suzanne York has a personal residence that she wants to pass to her children upon her death. Rather than waiting, she gives the children the home with the stipulation that she can continue to live in the home for the rest of her life. What best describes the transaction to the children? a. A reversionary interest. b. A life interest. c. A term interest. d. A remainder interest.

D She has made a gift with a remainder interest. Reversionary interest would have the home ownership returning to her. A life interest would be a controlling interest for life, and term interest would be a limited time.

Presuming Big Mike has used his entire lifetime generation skipping transfer tax exemption and this year he gives his granddaughter Jordan, age 16, $1 million dollars in cash after giving her $16,000 (equal to the annual exclusion) on her birthday. Big Mike has the permission of both of Jordan's parents to make the gift. How much is the gift tax on this gift? (The GST rate is 40%). a. There is no GST tax or gift tax. b. There is no gift tax but there is $400,000 of GST. c. $400,000 gift tax. d. $560,000.

D The GST tax of $400,000 is added to the gift for the determination of the gift tax. Thus, $1,400,000 × 0.40=$560,000.

Which one of the following trusts might be funded with $12,060,000 but usually not in excess of such an amount in the year 2022? a. A Standby Trust. b. A Pour-over Trust. c. An Asset Protection Trust. d. A Generation Skipping Trust.

D The GSTT offers a maximum $12,060,000 (2022) exemption and may be funded for the full exemption amount for skip persons.

Which of the following accurately describes ownership as Tenancy in Common? I. Undivided interests in the property. II. Fractional share included in gross estate. III. Is presumed when property is transferred to two or more people. IV. Income and costs are shared in proportion to ownership interests. a. I and IV only. b. I, II and III only. c. I, III and IV only. d. I, II, III and IV only.

D The ownership interests of a tenancy in common do not have to be equal but income and costs are shared in proportion to ownership.

A person or entity entitled to act on behalf of another is known as: a. A principal. b. A curator. c. An attorney at law. d. An attorney in fact.

D The power of attorney appoints an attorney in fact. This is the non-lawyer (agent) who acts on behalf of the principal. This is not an "attorney at law" although it may be.

A trust provision which provides beneficiaries with only as much trust principal or income (if any) as the trustee decides is appropriate and provides creditor protection for the beneficiary is known as: a. A sprinkle provision. b. An accumulation provision. c. A simple trust provision. d. A spendthrift provision.

D The purpose here is to give the trustee enough leeway to prevent the beneficiary from wasting or depleting the trust corpus. Sprinkling provision is a provision within a life insurance agreement that allows the policy's trustee to spread the death benefit around to beneficiaries at his or her discretion. An accumulation trust is a trust in which the trustee does not distribute the income from the trust, but instead gathers the income and any profits from sale of trust assets and holds these in the trust until the trust terminates (at a time specified in the creating document).Simple trusts allow grantors and donors to distribute portions of their assets both before and after their death. A spendthrift clause is a provision in a trust - most trusts contain one - that prevents a trust beneficiary from using a future distribution to secure credit. The clause also prohibits payment to a creditor if it extends credit to a beneficiary based on future distributions.

When Harry O'Forniture died he left a will with a trust. The terms of his will were such that his trust was to pay his widow, Patty, a payment of $50,000 per year. Harry also arranged for $25,000 to go to each of his two sons each year. There were no charitable bequests. The distributable net income of the simple trust for the current year was $96,000. What amount was Patty O'Forniture required to include in her gross income? a. $50,000 b. $48,000 c. $25,000 d. $0

The amount taxed to beneficiaries is limited to the trust's DNI. If the amount distributed is greater than the total DNI, a proportional amount is allocated to each beneficiary based on the total distributed to beneficiaries. Example: ($50,000/$100,000) × $96,000 = $48,000.

Jean-Claude and his wife, Marie, are both resident aliens living in Ohio. He has total assets of $9,000,000, of which $2,060,000 are located within the United States. Assuming Jean-Claude died today, which of the following statements is correct regarding estate tax return filing requirements for 2022? a. Jean-Claude's estate would not be required to file an estate tax return due to the size of his estate. b. Jean-Claude's estate would not be required to file an estate tax return, because non-citizens are not required to file. c. Jean-Claude's estate would be required to file an estate tax return, because the estate is not eligible for a marital deduction. d. Jean-Claude's estate is required to file an estate tax return because he was a resident alien.

A An estate tax return is not required for a U.S. resident alien, unless the decedent's gross estate, plus adjusted taxable gifts, exceeds the applicable exclusion amount ($12,060,000 for 2022).

Fred, the founder and CEO of WonderCo, recently passed away. At his death, Fred owned 80% of the stock of WonderCo and the WonderCo stock was his only asset. WonderCo is a publicly traded company. Which of the following discounts would be applicable to Fred's WonderCo stock? a. A Blockage Discount. b. A Minority Discount. c. A Key Person Discount and a Minority Discount. d. Neither a Key Person Discount nor a Blockage Discount.

A Answer "B" is incorrect because Fred owns a controlling interest in WonderCo; therefore, a minority discount is not applicable. Answer "C" is also incorrect due to the minority discount. Answer "D" is incorrect because they would get a key person discount; since Fred was both the founder and CEO of WonderCo, his stock is entitled to a key person discount and a blockage discount making "A" the best answer.

Which of the following describe accurately the meaning of the terms "tax inclusive" and "tax exclusive"? a. Estate tax payments include tax on the tax payment, while gift tax payments do not. b. Gift tax and estate tax include the tax payment making them inclusive, while income tax payments exclude the payment, thus they are tax exclusive. c. Tax inclusive items are gift, inheritance and income that will be taxed, while tax exclusive items will avoid such taxation. d. Gift tax payments include tax on the tax payment, while estate tax payments do not.

A Estate taxes require that tax be paid on the full amount, including the portion of it that will be used to pay taxes.

Eugene is considering having his attorney prepare a springing power of attorney in which he gives his friend, Eleanor, the power to handle his finances. Why should Eugene include such a document in his overall estate plan? a. In the event that Eugene becomes disabled, Eleanor will be able to pay Eugene's bills. b. Eugene is not legally competent. c. Eugene is only 16 years old. d. Eugene wants Eleanor to be able to handle all of his finances immediately. e. All of the choices.

A Eugene cannot not make Eleanor the agent of his springing power of attorney if he is not legally competent or is not of the age of majority. If Eugene wants Eleanor to be able to handle his finances immediately, he should not use a spring power of attorney, which only becomes effective upon the principal's disability or incapacity.

Your client, Zoe, has established a revocable grantor trust, naming a bank as the trustee. Pursuant to the terms of the trust document, your client receives all the income annually generated by the trust assets during her life. The assets placed into the trust consist of Zoe's mutual fund portfolio, her personal residence, a rental property located in another state, and two installment notes held by Zoe. Upon your client's death, all of the assets remaining in the trust are to be distributed to Zoe's two children. Upon Zoe's death, the assets remaining in the trust will: I. Be included in Zoe's gross estate. II. Be subject to the probate process. III. Receive a new income tax basis equal to the fair market value at death or her alternate valuation date if properly elected. IV. Be distributed as directed by Zoe's will. a. I only. b. I and III only. c. I, II and III only. d. I, II, III and IV.

A Grantor trusts do not remove assets from the grantor's gross estate, but do allow assets to pass outside of probate. Installment notes are IRD property and therefore do not get a step to fair market value, making statement III an incorrect statement. The trust document will determine how the assets are distributed, not the will.

James is the grantor of an irrevocable life insurance trust. The beneficiaries are his two children, Jordan and Colin. The trust has a crummey provision and James uses a split gift election with his wife, Donna, to contribute $52,000 as the initial trust contribution. Which of the following statements is/are correct? I. This transaction creates a 5/5 lapse problem. II. The children, Jordan and Colin, should affirmatively lapse the right to withdraw by responding in the negative to the crummey letter within the time allowed. a. 1 only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.

A Statement 2 is wrong. The children should simply let the power to withdraw lapse by time, not affirmatively. Statement 1 is correct. This creates a 5/5 lapse problem. The 5/5 rule serves a very specific purpose, it serves as a "limit", either on unintended gifts inside a trust for multi-beneficiaries or to limit how much is included in a gross estate where a beneficiary has somewhat unrestricted use of funds. The CFP® exam does not generally get into the details of the 5/5 except where it is included as a power for a Crummey Trust with multiple beneficiaries. (If there is only one beneficiary to the trust, no risk of unintended gifts, so all is fine.) With a split gift, each beneficiary is getting an amount and then gifting it back to the trust in excess of the 5x5 amount thereby creating a future interest gift for themselves to the other bene.

Property held in which of the following types of trust avoids probate? a. An Intervivos trust. b. A credit shelter trust created by testament. c. A QTIP. d. A GPOA Trust.

A Testamentary trusts, QTIP and GPOA trusts all generally pass through probate. A credit shelter trust is usually a testamentary trust. B, C and D are testamentary trusts and therefore created by the Will, so have to go through probate. An intervivos trust is created during life, avoiding probate. It is tricky question!

Which of the following statements is/are correct? I. The value of a CRAT where the decedent was the only non-charitable beneficiary is included in the gross estate of the decedent. II. Gift taxes paid two years prior to the death of the decedent for gifts made four years ago are included in the gross estate of the decedent under the gross up rule. a. I only. b. II only. c. Both I and II. d. None of the choices.

A The value of the CRAT is included in the gross estate and then deducted from the adjusted gross estate as a charitable deduction. Only gift taxes paid on gifts made within three years are included under the gross up rule.

Which of the following is an argument that favors the use of a revocable intervivos trust? a. Probate costs are avoided by the use of a revocable trust. b. There can be a substantial savings in income tax by the use of a revocable trust. c. There can be a substantial savings in estate tax by the use of a revocable trust. d. All of the above are valid reasons for the use of a revocable trust.

A There are no estate or income tax savings by using a revocable trust. There will be a savings of probate costs, because the use of a revocable trust avoids probate.

Which of the following is a way to transfer assets out of the gross estate during a client's lifetime? a. The creation of a joint tenancy with right of survivorship with the creator's spouse. b. A Testamentary Trust. c. A Grantor Retained Interest Trust with children as beneficiaries. d. A Client-owned life insurance policy recently transferred to an ILIT.

A This is because 1/2 of the asset is removed from the gross estate of decedent due to the deemed contribution rule. Answer "B" is incorrect because a testamentary trust is created at death. Answer "C" is incorrect because it is an incomplete gift until the grantor survives the trust term. Answer "D" is incorrect because if a client owns his own life insurance the proceeds are included in his gross estate. You will find questions like this on the exam, you can get down to two reasonable choices but one will have a slight advantage. In this case the re-titling of property is an immediate reduction in gross estate. The ILIT would not be for 3 years.

Eric and Tawny gift $120,000 to an Irrevocable Life Insurance Trust with Crummey provisions. The trust has, as beneficiaries, their three children. A few weeks later, Eric dies in an auto accident. Tawny, with the assistance of her attorney and Financial Planner, is calculating Eric's gross estate. How much of the gift will be brought back into Eric's gross estate? The annual exclusion is $16,000. Split gifts are available. The 5/5 lapse rule is in effect. a. $0 b. $24,000 c. $72,000 d. $120,000

A This was a cash gift, not a gift of life insurance. Therefore, none of the gift will be included in Eric's gross estate as the trust is irrevocable.

An estate freeze would accomplish which of the following? a. Any property transferred would be appreciating in value and the future gain would occur in the transferee's estate. b. A property with a decreased value could be transferred and the loss would freeze the basis at the lower amount. c. A property with an increased value would be transferred and the gain would be frozen in the estate of the transferee. d. A property transferred would be appreciating in value but any loss would occur in the transferee's estate

A in the case of an estate freeze, the property transferred would be appreciating in value and any future gain would occur in the transferee's estate.

Six years ago, Cy N. Kry established irrevocable trusts for each of his two children. The trusts pay an annuity to Cy for eight years, then the remainder goes to his children. His brother is the trustee of each trust. Which is a correct statement about the estate tax implications of this transaction? a. The corpus of the trusts are permanently excluded from Cy's estate but only if he lives for at least two more years. b. Cy's estate would not be required to include the trust assets, should he die today, because the trusts are more than 3 years old. c. The corpus is included in Cy's gross estate because he has a retained interest. d. The retained income interest makes the trust taxable in Cy's estate, no matter when he dies.

A Six years ago, Cy created a grantor trust for a term of eight years; if he dies before the end of the term, the entire corpus is included in his estate. Therefore, if Cy dies today, the trust property is in his estate. While he is receiving income, the income is subject to income tax in Cy's estate. Once he lives more than eight years, the corpus is transferred and out of his estate.

Which of the following accurately describes a testamentary trust? a. It is created as part of a will package and takes effect when the will is executed. b. Generally the assets included in a testamentary trust are subject to probate. c. It is a grantor revocable trust until death and then becomes irrevocable. d. It is an irrevocable intervivos trust

B A testamentary trust does not take effect (funded) until the will is administered. The trust funding is establish by the will through the probate process (process of validating the will). The trust itself is typically set up to be funded prior to death. The assets in the trust will come from the will and therefore were generally included in the probate estate.

Which powers may be retained by a grantor of an irrevocable inter-vivos trust without causing a reversion to "grantor trust" status? a. A right to make unsecured loans from the trust at current market interest rates. b. A right to apply income to support a dependent, provided the income meets the reasonably definite standard limitation. c. A right to direct a sprinkling provision. d. A right to withhold income from selected beneficiaries as discretion dictates.

B All other Options represent retained interests which are broad enough to possibly cause the trust to be a "grantor trust."

Which of the following trusts can permit the trustee to invade the principal for health, education, maintenance, and support (HEMS) for all beneficiaries presuming each trust is structured the same way with the grantor the decedent, the spouse of the grantor the income beneficiary, and the children of the grantor the remainder beneficiaries? 1. An ILIT. 2. A bypass Trust. 3. A GPOA (general power of appointment) Trust. a. 3 only. b. 1 and 2. c. 1 and 3. d. 1, 2 and 3.

B Statements 1 and 2 are the nonmarital trusts and therefore the trustee can have the power to invade for all beneficiaries. The GPOA trust is a marital trust and the trustee would be redirected to invade for the spouse only or the trust would not qualify for the marital deduction.

Which of the various types of trusts permits income sharing? a. QTIP Trusts b. By-pass Trusts c. General Power of Appointment Trusts d. Estate Trusts

B The A Trust, the Q-Tip Trust and the Estate Trust do not allow for splitting or sharing of income streams. Only the By-pass Trust allows for this income splitting or sharing. The bypass trust is the only non-marital trust of the list given.

Ethel L. Black, a widow, died. She had made no previous lifetime taxable gifts and she died with a gross estate of $11,200,000, consisting solely of a diversified portfolio of publicly traded, income-producing stocks. Her debts were $75,000 and estate administrative expenses amounted to $50,000. Which of the following post-mortem techniques should Ethel's executor consider electing? a. The alternate valuation date. b. Deduct estate administrative expenses on the estate's fiduciary income tax return. c. Pay estate taxes under IRC Section 6166. d. Use a Section 303 stock redemption.

B The alternative valuation is not beneficial because there is no estate liability. No estate tax is due therefore no installment payment is needed and 6166 does not apply. The estate is not a closely held business (C corporation) so Section 303 redemption does not apply.

Before her death, Karston Williams, age 74 gave her three grandchildren some money for their private school education. She paid $17,000 directly to the school for Jack's tuition and gave the same amount of cash to Sienna and Nancy. What would be the adjusted taxable gifts calculated in her estate if any assuming she had made no previous taxable gifts and that she died this year? a. $0 b. $2,000 c. $3,000 d. $34,000

B The amount of tuition paid directly to the institution is a qualified transfer not subject to the gift tax regime, but the $17,000 given directly to each of her other two grandchildren represents an excess of $1,000 each above the $16,000 per person annual exclusion allowance ($2,000).

Jack is a dentist who never married. Three years before his death, he made the following gift: A $300,000 (death benefit) life insurance policy on his life to Molly. (The policy was worth $5,000 at the time of transfer). - The only gifts he made this year was: Stock worth $40,000 was given to Mickey. At Jack's death, the stock had increased in value to $70,000 and the life insurance company paid $300,000 to Molly. What amount will be added back to determine the estate tax base? a. $0 b. $24,000 c. $40,000 d. $370,000

B The question is asking about what is added back to get to the ESTATE TAX BASE, not what is included in the gross estate. A very important factor in correctly answering this question. Adjusted taxable gifts are added back to the taxable estate in determining the estate tax base at the date-of-gift value ($40,000) minus the annual gift tax exclusion ($16,000) to arrive at $24,000. The gift to Molly is included as a gift of the $5,000 transfer value, but application of the annual gift exclusion fully offsets the gift.

Which of the following apply to Sec 303 redemptions? a. The estate must meet the 25% rule. b. Redemption amounts are determined by the payment of death taxes and estate administration taxes and costs. c. A publicly traded stock will usually qualify for a 303 redemption. d. The stock may not be preferred stock.

B The rule is 35% of the gross estate. The stock must be closely-held and it can be either common or preferred.

Charles Bronson placed blue-chip stocks valued at $200,000 into an irrevocable trust. The trust must pay 7% of the trust value to Charles each year for 10 years. After the 10-year period, the remainder is to be paid to his daughter, Lucy. Which of the following statements are correct: I. Charles will be required to file a gift tax return as of April 15 of the following year with extensions following the creation of the trust for the present value of the remainder interest less the annual exclusion. II. The total value of the trust will be included in Charles' gross estate if he dies before the end of the term of the trust. a. I is correct only. b. II is correct only. c. Both are correct. d. Both are incorrect.

B This is a grantor trust. To have removal from the gross estate, Charles would have to live beyond the trust term. Charles does not get an annual exclusion for Lucy because her interest is a future not a present interest and therefore will not qualify for the annual exclusion.

A trust that the grantor or trustee can terminate during his lifetimes is known as a: a. An intervivos trust. b. A revocable grantor trust. c. A terminable interest trust. d, A spendthrift trust.

B Trust termination is predicated on revocability. All other trusts or provisions may be part of an irrevocable instrument, thus cannot be terminated.

For a deed to effectively act as a "will substitute", which of the following is required? I. Competent grantor's signature. II. The property is free and clear and not subject to any mortgage. III. There must be delivery of deed during the grantor's lifetime with an intent to gift. IV. There must be a pre-death recording of the deed. a. I and IV only. b. I and III only. c. I, II and III only. d. I, II and IV only.

B The grantor must be competent and the deed must be delivered. Recording of deed does not affect gifting, but may affect future rights in the property. A gift can be made subject to a mortgage.

At the age of 45, Steven died in a car accident, leaving behind a wife and three young children. Which of the following assets would be included in Steven's gross estate at the full date of death value? A. A $100,000 universal life insurance policy on the life of Steven's wife. Steven transferred ownership of the policy to an Irrevocable Life Insurance Trust two years before his death. B. A Uniform Gifts to Minors Account established four years ago for Steven's 12-year-old son. Steven was the custodian of the account at the time of his death. C. A 529 plan established six years ago for Steven's 9-year-old daughter. Steven was the owner of the account at the time of his death. D. Life income provided to Steven from an irrevocable trust established by Steven's father 15 years before Steven's death. Steven's wife is the remainder beneficiary of the trust.

B The value of an UGMA account is included in the custodian's gross estate if the custodian is the legal guardian of the child and dies before the child takes control of the account (which occurs at the age of majority). If the child had died, the child would include the UGMA in his/her own gross estate. However, in this scenario, the child is still alive. A is incorrect. If an insured transfers his or her life insurance policy to an irrevocable trust within three years of death, the life insurance will generally be brought back into the gross estate. However, if the transferor was NOT the insured, the three-year rule does not apply. C is incorrect. A 529 is generally not brought back into the gross estate of the owner. D is incorrect. A retained life estate would be included in the gross estate. However, a GIFTED life estate (Steven's life estate was a gift from his father) is excluded from the gross estate.

Which of the following is not a prerequisite for gift splitting? a. Both spouses must be U.S. citizens or resident aliens when the gift is made. b. Donors must be married at the time the gift is completed. c. Two gift tax returns must be filed if gifts are split. d. Each spouse must signify their consent in writing on the gift tax form (709).

C All are prerequisites of gift-splitting, but only one gift tax return is required either where neither party or only one party exceeds the annual exclusion as determined after the gift splitting.

Which of the following accurately describes the income tax implications of a sale-leaseback using an installment payment method? I. The transferor may not be able to deduct lease payments made to a family member as ordinary and necessary business expenses. II. A fully depreciated property that is transferred by sale-leaseback to a family member can nonetheless be depreciated by the new owner. III. A sale-leaseback reduces the transferor's gross estate more than a gift-leaseback would. IV. The transferor of a sale-leaseback may be subject to depreciation recapture in the year of sale. a I and II only. b. I and IV only. c. I, II and IV. d. II, III and IV.

C All of the above are true statements regarding sale and leaseback except the gross estate will be reduced less not more for a sale in comparison to a gift.

Dr. Ben Allen has two primary assets in addition to his home and personal property. He is an osteopathic physician. He owns an S corporation that is producing substantial income. He has an X-ray machine and support equipment which is fully depreciated. His son, 18, has decided to go to chiropractic school after graduating from college. He would like to pay for the college and chiropractic school with pre-tax dollars. Based on this information, which of the following intra-family planning techniques would be appropriate? a. Gift stock in the S corporation to his son and use the education deduction. b. Sell X-ray equipment on an installment sale basis. c. Gift and leaseback the equipment and X-ray machine. d. Transfer the S corporation into a Family Limited Partnership.

C Gift and leaseback addresses the means to accomplish the desired objective of using pre-tax dollars to pay his son's tuition because the lease payments are a deductible business expense to the physician.

Which of the following is NOT a disadvantage of UGMA/UTMA custodial accounts? a. The assets are owned by the student for financial aid purposes. b. The custodian loses control of the assets at time of maturity. c. The assets are included in the donor's gross estate until maturity. d. The assets are non-transferable.

C One of the advantages of utilizing UTMA and UGMA accounts is the ability to lower the gross estate by contributing to the accounts. The annual gift tax exclusions apply but the assets in the account are in the child's estate not the donor's. Choice A is incorrect because these accounts can severely reduce the child's ability for financial aid. Choice B is incorrect because the custodian no longer has any control over the assets upon maturity. The child may or may not choose to use the assets wisely. Choice D is incorrect because the assets placed in this account may not be transferred or revoked.

Grantor is single and has established a trust, naming a bank as trustee. Pursuant to the terms of the trust document, Grantor is to receive all of the income generated by the trust assets during his life. Grantor may withdraw assets from the trust or place additional assets into it. The assets placed into the trust consist of Grantor's mutual fund portfolio, personal residence, a rental property located in another state, and two installment notes held by Grantor. Upon Grantor's death, all of the assets remaining in the trust are to be distributed to Grantor's two children. Which of the following statements is/are correct? I. Upon the transfer of the installment notes to the trust, any deferred gain will be recognized as taxable income. II. After the transfer to the trust, the income from the mutual funds will continue to be reported on the Grantor's tax return. III. Upon the transfer of the rental property to the trust, all the excess prior year's depreciation will be recaptured as ordinary income. IV. After the transfer, the $250,000 exclusion from capital gains remains available for the principal residence. a. II, III and IV only. b. I, II and III only. c. II and IV only. d. I, II, III and IV.

C Statement "I" is incorrect because deferred gain is not recognized as taxable income until such time as it is received. Statement "III" would ordinarily be true except that this is a grantor trust with control remaining with the grantor and all rental income taxable to the grantor, thus no true transfer which would cause depreciation recapture. This is a grantor trust.

Maxwell and Jim have resided together for several years. They are not married, so they cannot rely on the state intestacy laws to transfer assets to each other at the death of either. Additionally, Maxwell is concerned that if he dies first, his family may contest the transfer of his assets to Jim through his will so he wants to avoid any transfers through his will. Of the following statements, which transfer arrangements would ensure that Maxwell's assets will be transferred to Jim at Maxwell's death? I. A Qualified Personal Residence Trust (QPRT). II. An Irrevocable Trust. III. A Revocable Living Trust. IV. A Testamentary Trust. a. II only. b. I, III and IV only. c. I, II and III only. d. I, II, III and IV.

C The QPRT, Irrevocable Trust, and Revocable Living Trust would ensure that Jim would receive Maxwell's assets at Maxwell's death because the assets will transfer per the trust document. Maxwell's family will not be able to contest the transfers from the trust. A testamentary trust will not ensure that Jim will receive Maxwell's assets because a testamentary trust would be first created in Maxwell's will. The family could contest the will and block the transfer to the testamentary trust. In such a case, Jim may not receive the assets.

Which of the following is not necessary to carry out a Section 303 stock redemption? a. The value of the stock must be greater than 35% of the decedent's adjusted gross estate, including gifts made in the last 3 years. b. The 303 redemption can only be used if the corporation has the cash to redeem the shares. c. The 303 redemption can be made even without a positive earnings and profits account. d. The Section 303 redemption is limited to an amount that cannot exceed the death taxes of the estate, plus funeral and administrative expenses for which the decedent is liable.

C The closely-held stock must make up 35% of the decedent's adjusted gross estate value and must be the stock of a closely-held firm. The Earnings and Profit account must be positive or there is no need for a 303 redemption.

Delores established a revocable living trust and funds it with several apartment complexes. The trust requires that the trustee is to make annual distributions of all trust income to Delores' two nieces. Delores' sister, Hazel, is the trustee. Which of the following statements accurately reflect the tax treatment of this trust? a. Delores will owe gift taxes on the apartments placed into the trust. b. Delores' gross estate will be reduced by the value in the trust at her death. c. Income distributed will not be subject to gift tax as long as it qualifies under the annual exemption or unified credit. d. The income will be reported on the niece's tax returns.

C There will not be gift tax and the assets will be included in Delores' estate because she retains control over the assets (as placed in revocable trust). The income will be reported on Delores' income tax return because she is considered to control the trust corpus. This is a grantor trust.

Jenny gave her $750,000 whole life insurance policy on her life to her older sister as a gift. The gift tax value of the policy is the: a. Surrender value of the policy. b. Cash Value of the policy. c. Interpolated terminal reserve, plus the unearned premium. d. Death benefit less any outstanding loans.

C When a whole life policy is given as a gift, the fair market value (gift tax value) of the policy is the policy's interpolated terminal reserve, plus the policy's unearned premium.

Emil LaBelle has a small business and many investment assets accumulated over the years. The best thing you can recommend as his financial planner is to: a. Recommend he use a living trust to avoid probate. b. Suggest he use insurance to add liquidity to the estate. c. Gather information from Emil regarding his assets and goals. d. All of the above.

C Without knowing more about the assets and client goals (Answer "C"), all other choices (Answers "A" and "B") would be premature.

Which of the following apply to gifts to a 2503(c) trust? I. In order to qualify for the annual exclusion, Crummey powers must be used for beneficiaries under age 21 because the gift is a gift of a future interest. II. The annual income is usually taxed to the trust. If annual income is used to pay for support items for the grantor, then the income is taxed to the grantor. III. Unexpended principal and income must be payable to the beneficiary at the attainment of age 21. a. I and IV only. b. I, III and IV only. c. II and IV only. d. I, II, III and IV.

C Crummey powers are found in irrevocable life insurance trusts. The purpose of the 2503(c) trust is to reduce income tax to the grantor by naming a minor beneficiary.

Of the following who would be considered a skip person for purposes of generation skipping transfer tax from big Mike who is a single 64 year old with two adult children and four grandchildren, two of which have a deceased mother, Mike's former daughter-in-law. I. The two grandchildren of Mike whose mother is deceased. II. A trust where Mike's grandchildren from his daughter Ally are the only beneficiaries. III. Michael the 26 year old son of Kristy, a close friend of big Mike's and whom is named after big Mike. a. Only 2 is a skip person. b. 1 and 2 are skip persons. c. 2 and 3 are skip persons. d. All of these are skip persons

D All of these are skip persons. #1, because the grandchildren's real father is still alive, #2 because the only beneficiaries of the trust are skip persons, #3 because Michael the friend is more than 37 1/2 years younger than big Mike.

Use of an Irrevocable Life Insurance Trust can accomplish which of the following? I. Create a vehicle to avoid Generation Skipping Transfer Tax. II. Make proceeds available to the surviving spouse. III. Ensure that proceeds will be excluded from the probate of both spouses. IV. Shelters cash contributed for premiums from gift taxation up to the annual exclusion amount. a. I and II only. b. II, III and IV only. c. I, II and III only. d. I, II, III and IV.

D An ILIT will accomplish all of the items listed in this question.

Your client wants to accomplish the following: - Provide inflation protected income stream for parents. - Reduce income taxes. - Fulfill charitable intent. - Provide some control over the assets. Which of the following trust or funds would accomplish your client's goals? a. A charitable lead unitrust. b. A charitable remainder annuity trust. c. A charitable pooled income fund. d. A charitable remainder unitrust.

D The CRUT accomplishes all of these objectives. Income for parents eliminates "lead trust" and "pooled income." Control over assets eliminates CRATs. CRAT cannot provide for inflation. CRUT income can increase.

Which of the following are characteristics of a qualified disclaimer? I. It may not redirect the bequest to another person selected by the disclaimant. II. It must be received by the executor of the estate within 9 months of the death of the decedent. III. It must be written and irrevocable. IV. The disclaimant may disclaim a part of an asset. a. I and II only. b. I, II and III only. c. I, III and IV only. d. I, II, III and IV.

D A qualified disclaimer must be written, irrevocable and received by the executor of the estate within 9 months. It must not direct the asset and can be for any interest partial or full.

Which of the following accurately describes special and general powers? I. The surviving spouse can be given the power to invade the entire corpus of a marital trust for an ascertainable standard. II. Exercise, lapse or release of a general power of appointment are considered a transfer of the property by the power holder for gift, estate, and generation skipping tax purposes. III. The existence of a general power of appointment will cause the power holder to be considered the owner of all or part of the trust for federal estate tax purposes in the event the power holder dies. IV. The existence, lapse, exercise, or release of a special power will not cause inclusion in the power holder's gross estate. a. I, II and III only. b. I, II and IV only. c. I, III and IV only. d. I, II, III and IV.

D All of the above statements accurately describe special and general powers.

Which of the following accurately describes a QTIP Trust? a. A QTIP is sometimes called "B" Trust. b. Trust income must be paid to the spouse or other designated beneficiary at least annually. c. The trust assets will be included in the gross estate of the surviving spouse and the spouses estate will pay any estate taxes. d. The surviving spouse may demand that the trustee only have income producing property in the trust.

D Answer "A" is incorrect because a QTIP is not the same as a "B" trust. Answer "B" is incorrect because the income of the trust must be paid to the spouse, not to any other beneficiary. Answer "D" is correct because the surviving spouse may demand only income producing property. "C" is incorrect because the remaindermen will pay any estate taxes.

Which of the following applies to the marital deduction: a. In 2022 it is limited to $12,060,000 or 1/2 of the gross estate, whichever is lesser. b. The spouse may be of any citizenship. c. The property may be in the form of an incomplete transfer. d. The marital deduction may be applied to terminable interest property.

D Answer "A" is incorrect because in 2022, it is the applicable exclusion amount not the marital deduction that is $12,060,000. The spouse must be a U.S. citizen unless a QDOT is utilized and property must be a complete transfer to qualify for the marital deduction. The terminal interest property that will qualify are those items which are the exception to the terminal interest rule such as (1) GPOA trusts (2) QTIP trust and (3) charitable trusts where the surviving spouse is the only non-charitable beneficiary.

Which of the following is not a requirement for the unlimited marital deduction? a. In order to qualify for a marital deduction, the decedent must have been married, but could be separated not divorced, as of the date of his death. b. The surviving spouse must receive property that is included in the gross estate of the decedent. c. The surviving spouse must be a U.S. citizen unless there is a QDOT. d. The total value of the qualifying property received by the surviving spouse is excluded from the taxable estate by the unlimited marital deduction.

D Answers "A," "B" and "C" are all requirements of the unlimited marital deduction. Answer "D" is incorrect because only the net value, not the gross value, of qualifying property left to the surviving spouse is excluded by the marital deduction. The term "net value" for marital deduction purposes equals the gross value of the qualifying property left to the surviving spouse less any taxes, debts, or estate administration expenses payable out of the spousal interest.

Which of the following rights will not cause an insurance policy to be included in the gross estate of the owner/insured if retained within the three years prior to the death of the owner/insured assuming the policy was in an ILIT? a. The right to borrow from the cash value in the policy. b. The right to assign the policy, but only to a qualified charity. c. The right to surrender the policy, but only in case of terminal illness. d. The right to change the name of a charitable beneficiary to another charitable beneficiary.

D Any incidence of ownership (answers A, B or C) constitute incidence of ownership and would cause the policy to be included in the gross estate. The right to change a charitable beneficiary to another charitable beneficiary is not an incidence of ownership because the first charitable beneficiary may no longer exist.

With regard to the required income distribution of the various types of marital trust, which of the following trusts permit accumulation of income? a. A QTIP Trust. b. A TPP Trust. c. A Power of Appointment Trust (GPOA). d. An Estate Trust.

D Both the GPOA Trust and Q-Tip Trust require distribution of income at least annually to the spouse. A TPP Trust holds tangible personalty. A special type of power of appointment trust, called an estate trust, grants the surviving spouse a testamentary general power of appointment over the trust assets. Only the Estate Trust permits income accumulation.

Dan Ryan wishes to estimate his probate estate. The following are assets listed on his data form. What is included in the probate estate? -$5,000 Limited Partnership Interest held as JTWROS with his brother who made no contribution. -$150,000 home held in tenants by the entirety (TE). -$20,000 municipal bonds held in a separate account. -$20,000 child UTMA accounts. -$25,000 Mutual Fund held in community property with his spouse. a. $40,000 b. $20,000 c. $45,000 d. $32,500

D Joint tenants with rights of survivorship and tenants by the entirety pass outside probate. The municipal bond and one half of the community property are included in probate, equaling $32,500.

Under which of the following circumstances would a decedent be considered to have died intestate? a. The decedent handwrote a will and signed it but did not date it. b. The decedent was not of "sound mind" when he signed his statutory will. c. The decedent prepared a proper will listing every asset that he owned at the time. He died 5 years later. d. Choices A and B. e. Choices A, B and C.

E. Answer "A" describes an invalid holographic will. Answer "B" describes a situation in which the testator is not "of sound mind" and therefore cannot make a valid will. Answer "C" describes a will with no residuary clause. If the decedent dies without a valid will or a will that only covers part of his assets, he is said to have died intestate. A proper will means it was signed, dated and witnessed.

XYZ Corporation is a closely held corporation. Martin McFly, along with the three other owners, set up a stock redemption agreement requiring the corporation to buy all shares of a deceased or disabled shareholder. The plan is funded by entity life insurance policies on each shareholder. Premiums are paid by the corporation. The agreement states that the share price will be established by an independent, competent third party appraiser. What are the tax implications of this plan? I. A deceased shareholder's gross estate will be increased by the amount of the life insurance. II. There is no step-up in basis for decedent's family on the shares of stock covered by the plan. III. The corporation will owe income tax on the difference between the cash value of the policy and the death benefit amount. a. I, II and III only. b. I and III only. c. II only. d. None of the above.

d The deceased shareholder's estate will not increase due to the life insurance, as the deceased shareholder does not own the policy and already has the value of his interest in his gross estate. There is a step-up in basis because the decendant died and the shares are "purchased" by the corporation. The corporation is "owed" the premiums by the individual at death and does not pay tax.